Is It Worth Delaying Claiming Social Security If It Means Withdrawing More From Your 401(k)?

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One of the most common dilemmas people face as they near retirement is whether to start collecting Social Security or delay it for a higher monthly benefit. But delaying Social Security often means relying more heavily on other resources, like a 401(k) or other savings, to fill the gap. Is it worth it?

“When it comes to decisions about money, it is a matter of feeling in control and not feeling anxious or stressed,” said Trevor Houston, CEO at ClearPath Wealth Strategies in Frisco, Texas. “One of the most common questions is whether to wait for the Social Security payments or to take money out of the 401(k) plan early.”

Here’s what to consider before tapping your 401(k).

What to Consider Before Tapping Your 401(k) To Delay Social Security

Delaying your Social Security retirement benefits beyond full retirement age (FRA) results in a higher monthly benefit amount until age 70.

“If you delay taking Social Security, the monthly check will increase by about 8% each year until you reach age 70. That’s equivalent to getting a salary increase every year,” Houston explained. “Pretty nice, right? However, the strategy of waiting only makes sense if you have enough in savings, investments or your 401(k) to cover your bills while you are waiting.”

Here are some important factors to consider:

• Life expectancy: Do you have any serious health conditions? Have your parents and grandparents lived long lives? If you’re in good health, waiting could give you a bigger monthly check. On the other hand, Houston explained that if your health or family history suggests a shorter life expectancy, it may make sense to claim Social Security early and use the money while you can.
• Monthly living expenses: How much money do you need every month to pay your basic living expenses? “If you start taking out your 401(k) too early, you could end up short later on, especially if the market declines,” Houston said. This is called sequence risk, which could disrupt your retirement plan. A 2024 Vanguard report found that the average 401(k) balance for those age 65 and older is $272,588. However, the average is often skewed by high earners, and the median balance is $88,488.
• Taxes: Money from your 401(k) is taxed as ordinary income. According to Houston, taking out large sums of money could push you into a higher tax bracket.
• Safety and security: A stable monthly income provides a feeling of safety and security. “Some people like to have the Social Security check coming into their account each month. It feels like a regular paycheck, and that provides a great deal of peace of mind during retirement,” he pointed out.

When Holding Off Could Make Sense

To show when this strategy might work, Houston provided an example:

Let’s say David reaches age 66, is in good health, and his parents are in their 90s. His 401(k) balance is around $400,000, and he doesn’t need Social Security to pay bills or meet other financial needs. David chooses to delay Social Security and withdrawal from his 401(k) instead.

Also, because of his conservative risk tolerance, his 401(k) generates a 5% annual growth rate, less than the 8% annual increase he’d get by waiting on Social Security.

“At the end of the day, waiting for Social Security and using your 401(k) could be a smart strategy if you have enough savings, and you expect to live a long time. But everyone’s situation is different,” Houston wrote. “A financial professional should evaluate your personal goals to determine the best course of action for your specific situation.”

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